Financial Planners Canada Tips on Making an Informed Choice

Written by Tiffany Woodfield, Portfolio Manager, CIM® CRPC® and John Woodfield, Portfolio Manager, CIM®CFP®

Are you moving to Canada, or are you simply looking for a new financial planner? When looking at financial planners in Canada, there are some critical considerations. We'll cover all of them and other essential details anyone looking to take control of their financial future needs to know.

While you might be hoping to find the perfect financial planner, keep in mind that there are other designations that you should consider. In this article, I'll cover everything you need to know if you're looking for a great financial planner in Canada.

TABLE OF CONTENTS

1. What does a Canadian financial planner actually do?
2. CFP vs. financial planner - What's the difference?
3. Is there a difference between a financial planner and a financial advisor?
4. Certified financial planners in Canada
5. Who regulates financial planners in Canada?
6. How do I know if a financial planner is qualified in Canada?
7. How to evaluate the expertise of a financial Planner
8. What is financial planning?
9. What should every financial Plan include?
10. What are the essential steps in creating a financial plan?
11. Canadian financial planning basics
12. Financial planning for Canadian expats
13. How do fee-only planners work?
14. Do I need a financial planner? Or can I do it myself?
15. What is the cost vs. value of an excellent financial planner?
16. How should I evaluate how my wealth management team is doing?
17. Summary of key points:

What does a Canadian financial planner actually do?

A financial planner's job is to understand your current situation and then assess your goals and where you want to be in life. They identify alternative courses of action and the cost and benefit of each scenario. Your financial planner should take into consideration risk and return along with your time frame. In other words, they need to know the time frame you have for retirement and any other important financial and life milestones. Your advisor will also need to assess the level of risk with which you are comfortable when investing.

From there, your financial planner will create a road map of how to get to your destination. Together you implement the plan and then review and revise along the way as your situation changes. A plan is not a one-time event but an ongoing process with your financial planner as your guide.

The benefit of working with a financial planner, and a CFP in particular, is that they have the experience to help you achieve your goals. A CFP is held to a fiduciary duty, which means they have to put your interests first when making any decisions on your behalf. In contrast, by law, a financial advisor who is not a CFP does not necessarily have the same fiduciary duty as a CFP.

Also, a CFP has the training to handle complex situations. They need to do ongoing education to keep their certification. They can provide their expertise in retirement planning, savings advice, downsizing advice, tax planning, estate planning, and insurance advice.

So what exactly is the difference between a CFP and a financial planner? Let's dig into this further.

CFP vs. Financial Planner - What's the difference?

The main difference between a CFP and a financial planner is that a certified financial planner (CFP) must be certified by the Certified Financial Planner Board of Standards, Inc.

Getting certified as a CFP involves extensive training, experience, and a commitment to the CFP Board's ethical standards. This standard requires a CFP to act as a fiduciary, which means they have an obligation to do what is best for their client. A fiduciary standard is a higher standard than a suitability standard.

The difference between the suitability standard and fiduciary duty is subtle but important.

Is there a difference between a financial planner and a financial advisor?

A financial planner is someone who focuses on creating a financial plan for a client. They may or may not do this at a charge when you go to them requesting a financial plan. You might choose to do this if you want to know when you can retire or how much money you should be saving now.

A financial advisor is someone who is licensed to manage your money. Depending on your asset level, they may do a financial plan for you. The benefit of working with a financial advisor as opposed to a financial planner is that the advisor can invest your money and keep you on track to reach your goals whereas a financial planner who doesn’t invest your money can only create a plan that is relevant at that point in time.

A financial advisor can also specialize in financial planning in areas such as retirement planning, estate planning, debt repayment and tax planning.

 

Certified Financial Planners in Canada

An individual who holds this CFP designation must have completed what the board refers to as the four E's: examination, education, experience and ethics. A CFP has agreed to act as a fiduciary and put the client's best interest first. This agreement creates greater confidence between you and your CFP. Your CFP will also have formally recognized experience in estate planning, financial planning, taxes and retirement.

A CFP must also complete ongoing education to keep their certification. 

Who regulates financial planners in Canada?

In Canada, there is provincial regulation around who can call themselves financial planners and financial advisors. For example, in every province except Quebec and Ontario, someone can call themselves a financial planner without having any formal qualifications.

How do I know if a financial planner is qualified in Canada?

To know if your financial planner is a CFP, go to the FP Canada website and go to Find a Planner. And to find out if your advisor is registered to use the title "financial advisor," go to the National Registration Search (NRS).

An advisor with the designation CRPC® has completed a financial planning designation from the College for Financial Planning in the US. The CRPC® designation requires that an advisor understand the entire retirement planning process, including sources of retirement income, employer-sponsored retirement plans, taxes, personal savings, retirement cash flow and estate planning.

If you're a US person or a dual citizen, you will need a team with experience in financial planning for both Canada and the US. This will also be important if you have assets on both sides of the border. Finally, if you are moving from the USA to Canada after working in the US, you will likely want a dual-licensed advisor on your side.

How to evaluate the expertise of a financial planner

If you are interviewing a financial planner, you may want to know what questions to ask or how to discover if they will be a great fit. First, you should decide if you want to have a CFP guiding you or if you're comfortable working with a financial advisor or financial planner.

Next, when you meet with an advisor, you can ask them about their experience working with clients in situations similar to yours. You can also see what other qualifications they have.

Are they a portfolio manager, which also indicates a fiduciary duty? To become a portfolio manager (PM), you need a higher level of education, qualification and industry experience. Working with a PM eliminates any concerns you may have about conflicts of interest. A portfolio manager has fee-based compensation and is fully transparent with your costs. This is part of being a portfolio manager as it puts the PM on the same side of the table as the client.

Know Your Advisor: IIROC Advisor Report

If your advisor isn't a PM, do they have any further designations? Check and see what additional qualifications they have.

Finally, you can ask how they are compensated and if they are a fee-for-service financial planner. If you're speaking to a fee-only financial planner, be sure to ask if they get a referral fee to recommend to financial advisors. A referral fee would create a conflict of interest.

What is financial planning?

Financial planning means looking at your current situation and determining if you can reach your financial goals in the future. It is based on gathering information, making some educated assumptions for the future and creating a road map for achieving those goals. It is vital that financial planning is an ongoing process and not a one-time event. Your situation continually changes, and this is where it is essential to have a team that works alongside you as your financial guide

What should every financial plan include?

There are some critical elements to every financial plan. At SWAN Wealth, there are six main areas that we cover in every financial plan.

A SWAN financial plan has six foundational pillars:

1. Cash flow planning
2. Risk management planning
3. Investment planning
4. Tax planning
5. Retirement planning
6. Estate planning

At different stages of your life, certain pillars will be more crucial while others are not. However, the foundation of understanding what your cash flow needs are now and in the future is imperative. While these can change, and they often do, if you have an up-to-date map, you at least are aware when you are off course, and you can reevaluate.

Nobody wants to drive blind and not know if they are off the road.

At SWAN, we tell our clients to think of three buckets:

Bucket 1: Short-term money needed in one year or less.

Bucket 2: Medium-term money needed in one to five years.

Bucket 3: Long-term investments for five years plus.

The buckets help clients put their goals and cash flow needs into perspective and make them more manageable. It also makes it easier for risk management because the money you need in one year needs to be conservative and liquid. In contrast, you can take on more risk if your time horizon is longer.

Risk vs returns is an essential part of financial planning to which every advisor should pay particularly close attention. While you may want to see high returns, this isn't a good choice if you can't stand higher risks. If you're starting a new relationship with a financial advisor, they will do a risk assessment. However, you can also ask them about their investing philosophy and see if it feels good to you.

At SWAN, first and foremost, we aim to keep our clients' investments optimized, so their legacy is protected. We take into consideration their time horizon and make recommendations accordingly. If you consider the three buckets again, in your third bucket if you have a longer time frame you may be able to take greater risk. Whereas if you are near or in retirement we aim to protect our client's assets and ensure they have future income from their investments.

 

What are the essential steps in creating a financial plan?

STEP 1

The first step is to understand where you are currently. What is your net worth? Look at assets and liabilities. (i.e. What you own and what you owe.) Then look at your cash flow needs considering the three buckets I mentioned above.

STEP 2

The second step is to understand your goals and where you want to be. Think again of the three buckets.

When understanding your goals think of three buckets:

• Short-term <1 year. Ex: purchasing a new car.
• Medium-term 1-5 years. Ex: moving or a significant vacation.
• Long-term > 5 years. Ex: looking at when you can retire or when you can upgrade or downgrade your home.

STEP 3

The third step is that your financial planner analyzes the information you provided in the first steps. They run the numbers taking into consideration inflation, pensions, income, real estate and market fluctuations. They conclude how much you need to reach your goals and if those goals are realistic. This stage is what we call: "find out your number."

STEP 4

The fourth step is to develop and present. You might have discovered the number for when work becomes optional, or how much you can spend each month or year and never run out of money or how much you need to save. Based on this, your financial planner will develop a financial plan from the information you provided. Now, you get the answers to your important financial question such as:

"When can I have a work-optional lifestyle?"

"Can I maintain my lifestyle and be sure I never run out of money?"

"Does it make sense to move or sell my home?"

STEP 5

This is where we implement. You have a plan, and it's time to put the plan into place and use it as a roadmap. If you determined that you need to save more, then this is where you implement. If you have determined tax strategies that will help you plan for future tax liability or estate planning that will make the transfer of wealth easier, this is where you take the steps to execute the strategies. If your assets are substantial, it will likely be in your best interest to work with a professional to ensure that everything is taken care of. When you have a plan, and you've started implementing it, you can sleep well at night again!

STEP 6

In the final step, it's time to monitor and review. Like anything, if you don't monitor and track how you are doing, your plan is no longer based on facts but based on assumptions and quickly becomes obsolete. You'll want to communicate with your financial planner about any changes and keep on track to reach your goals. The age-old saying, "If you fail to plan, you plan to fail," is so true. Always make sure your plan is up-to-date and aligned with your current goals and circumstances.

Canadian financial planning basics

It is essential for Canadians living in Canada to understand the stages above and what they are entitled to for government pensions. Because Canada has a high tax regime, it is crucial to plan if you are thinking of retirement. You will want to mitigate a significant taxable event if possible.

Common questions about financial planning in Canada are around these topics:

• RRSPs
• CPP
• OAS
• GIS

RRSPs

An RRSP is a retirement saving and investing vehicle where money grows tax-free until withdrawn. Then it is taxed at your marginal rate. (This means it is added as income to your tax return as though you earned it the year you withdrew the money.)

Many people get confused because they think they have to wait until they are 71 to take money out of their RRSP*. Because you are taxed at your marginal tax rate, it may make sense to take money out sooner than 71 if you have a low-income earning year. You can do this without penalty. It is important to work with your financial planner or financial advisor to determine when to take money out.

* The year you turn 71, you must withdraw the money in your RRSP or convert it to an RRIF and start taking a minimum amount determined by the CRA.

Canadian Pension Plan (CPP)

CPP is based on your average earnings throughout your working life in Canada. You also could receive credits from a former spouse or common-law partner. You must be at least 60 years old to qualify, but the amount goes up if you wait to apply. For more information, go to Canada Pension Plan - Overview to determine how much you could receive, how to apply, and when to start your retirement pension.

Old Age Security (OAS)

OAS is based on how long you lived in Canada after the age of 18. You can receive your first payment the month after you turn 65. You can receive up to $629.49 monthly in 2021. You are taxed on this income, and if you earn above certain thresholds, this money can be clawed back (or taken back) from the government. For more information, go to Old Age Security: Overview - Canada.ca.

Guaranteed Income Supplement GIS

GIS is a monthly payment if you get OAS and your income level is below a threshold. For more information, go to Guaranteed Income Supplement – Overview - Canada.ca.

Financial planning for Canadian expats

In my experience as a financial advisor with clients in the US and Canada, four main areas need to be considered when an expat has a financial plan.

1. Taxation
2. Pensions
3. Estate planning
4. Cost of living

Taxation

For tax planning, it's essential to work with a professional who will understand how to avoid double taxation and pitfalls that an expat often encounters unknowingly. It is important from a tax perspective to plan when you will start taking money out of registered plans such as IRAs and RRSPs. These represent a potentially significant future tax liability. For example, although you must start taking distributions from an IRA (RMDs) at age 72, you can start taking the money after age 59.5 without penalty.

So if you have a low-income year, you may consider this. In addition, if you have accumulated assets in an RRSP, at 71, it is converted to an RRIF, and you need to start taking money out. However, you can take money out sooner without penalty.

Pensions

Although the full retirement age for social security has increased in recent years, you still have a few options of when to start taking your social security. You can take your pension at full retirement age (FRA), earlier at a reduced amount, or age 70 at an increased amount.

It is essential to run the numbers around when it is best to start taking social security and CPP if you are entitled to both. You can claim social security when living in Canada. Social security may be reduced due to the windfall elimination provision (WEP) if you are also taking CPP. But it is still better to claim both if you are entitled to both.

Even if your spouse didn't work in the US and you did, they may be entitled to claim spousal benefits.

Learn more: Benefits for Spouses (ssa.gov).

Estate Planning

Wills need to be updated for Canada. Please note that a non-resident executor can cause double taxation. Trusts do not work the same way in Canada as in the US. Your options for using trusts are more complicated as they may not be treated the same in both countries, which could cause an increase in taxation. When doing estate planning, is it essential to understand the implications if you have a non-resident executor or do not have a will updated for living in Canada.

Cost of Living.

Often clients say the cost of living in Canada is double what they would pay in the US to Canada if taking out currency exchange. Although healthcare is less expensive in Canada, taxation is higher. It is essential to consider this when planning for the cost of living.

How do fee-only planners work?

A fee-only financial planner refers to a planner paid only by the fees a client pays, and they do not invest your money. People consider going to a fee-only financial planner when they are worried their financial advisor will have a conflict of interest when creating their plan.

A financial advisor may be compensated by selling certain investments, mutual funds, or insurance. However, note that a fee-only planner can get paid a referral fee if they do a financial plan and refer you to one of the advisors in their referral network. Gaining a referral fee is a conflict of interest and must therefore be disclosed to the client.

The best way to be sure you are on the same side of the table as your financial advisor or financial planner is to work with someone who has a fiduciary duty. If an advisor has a fiduciary duty, they legally have to put a client's needs first. A portfolio manager (PM) and certified financial planner (CFP) are held to this standard. You can also ask if they get referral fees or commissions to recommend certain products.

A fee-only financial planner can be helpful in the following circumstances:

• You are just starting to save and invest. You do not have enough investable assets to have your investments managed by a wealth management team. For those with less than $500k in investments, this may be the best option.
• You have a specific situation, and you would like the plan to address an area with which your team isn't familiar.
• You feel you need a second opinion.

If you decide to go with a fee-only financial plan, you can usually choose either an hourly or flat rate. An hourly rate is usually around $300 per hour. A simple retirement plan can cost about $2500, while a comprehensive plan will likely cost around $4500. An in-depth plan including cross-border issues will typically cost $10,000 or more.

A significant drawback to a fee-only planner is that it is expensive to create a financial plan for a single point in time. It becomes obsolete quickly as your life changes. A fee-only planner isn't accountable to you as they aren't your ongoing guide. They also aren't necessarily qualified as a CFP. And they may still have a conflict of interest by getting a referral fee.

Suppose you have enough investable assets and can go with a portfolio manager. In that case, you get a financial plan as part of their service, and they are held to the highest standard as a fiduciary. They will be putting your needs first.

Do I need a financial planner? Or can I do it myself?

The answer to these two questions comes by asking yourself some more questions to see if you are qualified to do the job. It is your financial future, after all!

Questions to ask yourself:

1. Do you have the time? Managing your financial future isn't just setting it and forgetting it. If you enjoy monitoring, tracking and following your financial future, it may be a fit.
2. Do you have the expertise or desire to learn continually? To create a sound financial plan, you need to understand taxes, retirement planning, financial planning and estate planning. You will need to continue to stay up to date with these areas to manage your finances successfully.
3. Do you have the discipline, and are you comfortable making financial decisions? A lot of people panic when the markets go down. Can you stay the course, or do you need someone to help guide you?
4. Do you understand the retirement plans and pensions and the rules that are around them?

These are just some of the primary considerations for whether you may consider managing your financial future on your own without a wealth management team.

If you didn't have a resounding yes to those questions, you might not be happy doing this alone.

To understand better if you really should not do it yourself, ask these questions:

1. Am I detail-oriented, and can I stay on track?
2. How busy is my life, and what else am I juggling?
3. Do I have a plan B if something happens to me? Will my family be okay managing everything? If I have been doing it all myself, what happens if something happens to me?
4. Is my situation complicated?
5. Do I understand all areas of financial planning?
6. Do I have a short time frame? In other words, am I just starting and have a long time frame to consider or am I close to retirement and I need to make my money work for me?
7. Can I afford not to use a financial planner? What mistakes may I make in regards to not understanding tax pitfalls or mistiming the market?
8. Do I know enough about investing and estate planning to ensure my wealth is appropriately protected?

Managing your financial future alone can be done, providing you have the time, the discipline and the knowledge. If you do not have these, the negative consequences, particularly if you are nearing retirement, can be the difference between living in a trailer or living in a mansion.

We don't know what we don't know. If this isn't your main area of interest or you do not have the time to dedicate to it, managing your investments solo may not be a great fit.

What is the cost vs. value of an excellent financial planner?

As customers, we want to make educated decisions and do our due diligence when paying for something. When hiring a financial planner or advisory team, the cost can be one of the most challenging elements to understand fully.

When we discuss money and our life savings, it is emotional and not just logical. It is difficult for our brain to understand the difference between facts and emotions.

From an emotional perspective, we might be thinking about what we are getting for this cost. We might see the cost as a large sum of money. We become fearful and wonder if we are being taken advantage of because we don't fully understand the value of what we are receiving.

Logically, we understand when we hire any professional, we have to pay for their services. But we may not fully understand the value of a financial advisor. But take into consideration what happens when we hire other professionals. It is more straightforward.

We employ an accountant to file a tax return. We hire a lawyer to create a will. Or we hire an engineer to build a bridge.

But it is not as clear when we hire a financial advisor because there isn't an end date or final result. We are not signing on the dotted line to be guaranteed to earn 5-8% every year and make sure the market will never go down. The financial agreement doesn't say that your advisor will be there for you when you're unsure about making financial decisions or guide you to avoid tax pitfalls.

The contract doesn't say that your advisor will help you to understand why certain investments may not be suitable for you. The fine print doesn't say that your new financial advisor will coordinate with your accountant and lawyer, be your sounding board, help you plan financial transitions and transfer your wealth to your loved ones.

But that is what your financial advisor will do if you are working with a team that puts your best interest first.

On top of it, a lot of the work your advisor will do is behind the scenes. There are invisible elements that an excellent financial advisor does for you, but because it cannot be quantified as easily as doing a tax return, our fear of paying too much creeps in.

The cost of having your wealth managed by an excellent financial advisor may be difficult to accept because it isn't clear. This is normal, and the only way around this is to acknowledge this fear and then consider the logical side. The logical side is easier to understand.

As costs are part of hiring a financial advisor or even working with a financial planner one time, it may be helpful to ask yourself six these questions:

1. Am I qualified and willing to take on the task of investing and doing financial planning for myself? If not, then you need a financial advisor regardless.
2. Will I have sleepless nights when the markets turn south if I'm doing this alone?
3. Do I understand the tax implications of different investments?
4. If you are considered a US person, ask: am I confident I can plan to avoid double taxation with the IRS and CRA?
5. Do I believe that over the next 10, 20, 30 years that this advisory team will bring value to my portfolio and my life of at least 1% a year? 1% is likely close to your cost of working with an excellent advisory team.
6. What is the cost of not hiring a professional team? This is often the question people don't ask themselves. But the negative consequences of trying to time the market or making a mistake that causes a significant tax hit are limitless.

So logically, the value of working with an excellent financial advisor is immense. It is an investment in your future. Even if you were to keep money under a mattress, it shrinks due to inflation by around 2% every single year. Now consider that a very conservative portfolio would expect to earn 3-5% after cost.

Finally, if you do decide that being guided by a financial advisor is what you want, make sure you feel comfortable communicating with your advisor. Make sure that they understand your fears and needs. Choose wisely when selecting who will guide your financial future. It is your financial future, after all.

How should I evaluate how my wealth management team is doing?

Once working with a wealth management team, evaluating how they are doing is subjective. People may think they should evaluate based on getting the most significant return. This appears tangible. You might begin comparing your return with your friends or neighbours. However, your returns are directly dependent on how much risk you are able and willing to take. This is based on your goals and time frame, which are likely different from your friends and neighbours.

For example, we have clients at various life stages, and their returns vary significantly if they are close to or in retirement versus if they have a longer time frame.

A better way to evaluate your wealth management team is to see how successful they are at being your guide.

• Are you comfortable having difficult conversations?
• Do you feel they understand you and your goals?
• Do they help you navigate the markets when they are going down? (Because the markets will always go both up and down.)
• Do they help you Sleep Well At Night because you know that everything is being taken care of?

We know that any financial plan is only as good as the understanding of your goals from the beginning and as they change along the way.

So go back to the original six questions listed above to see if they have been successful as your guide.

Summary of key points:

• There are key differences between a CFP and a financial planner. Make sure you know the difference before you hire a financial planner.
• A financial plan has six important pillars which you should familiarize yourself with if you're going to work with a fee-only financial planner.
• There are additional considerations for expats when it comes to financial planning in Canada versus the US.
• A fee-only financial planner is an option with both pros and cons. Ensure you know where the conflict of interests may lie.
• When considering the cost of a financial planner, it is important to understand your needs and what value they can bring to you. Will they bring you greater value than the ultimate cost of working with them? Is there going to be a costly downside to not working with an excellent financial advisor?

Next steps

If you’re a Canadian resident or are planning on moving to Canada and need assistance with moving your investments, estate planning, and portfolio management, please get in touch. At SWAN Wealth we specialize in Canadian financial planning, cross-border financial planning and cross-border wealth management.

More Canadian financial planning articles and guides

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Cross-Border Estate Planning Guide

Roth IRA Canada: How to Manage Your Investments Across the Border

The Ultimate Financial Planning Resource for Dual Citizens or Green Card Holders Living in Canada

401k in Canada - How to Stay Onside with the IRS and Avoid a Large Tax Bill

Retiring to Canada - A Financial Planning Guide

Financial and Tax Planning for US Citizens Living in Canada

Canadian RRSP Facts for Dual Citizens, Expats and Canadians

 

About the Author

Tiffany Woodfield is a Portfolio Manager licensed in Canada and the USA, and the co-founder of SWAN Wealth Management, along with her husband, John Woodfield. Tiffany specializes in advising clients who live both in Canada and the United States and want to simplify their cross-border financial plan, move their assets across the border, and optimize their investments so they can minimize their tax burden. Together Tiffany and John Woodfield help their clients simplify their cross-border finances and create long-term revenue streams that will keep their assets safe whether they live in Canada or the US.

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